Free Enterprise Fund v. Public Company Accounting Oversight Board

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Free Enterprise Fund v. Public Company Accounting Oversight Board
Supreme Court of the United States
Argued December 7, 2009
Decided June 28, 2010
Full case nameFree Enterprise Fund and Beckstead and Watts, LLP v. Public Company Accounting Oversight Board, et al.
Docket no.08-861
Citations561 U.S. 477 (more)
130 S. Ct. 3138; 177 L. Ed. 2d 706
Case history
PriorJudgment for defendants affirmed, 537 F.3d 667 (D.C. Cir. 2008), cert. granted, 556 U.S. 1234 (2009).
Holding
The dual for-cause limitations on the removal of members of the Public Company Accounting Oversight Board contravene the Constitution's separation of powers, but the unconstitutional limitations are severable from the remainder of the statute. The Board's appointment is consistent with the Appointments clause. Court of Appeals for the District of Columbia Circuit reversed in part, affirmed in part, and remanded.
Court membership
Chief Justice
John Roberts
Associate Justices
John P. Stevens · Antonin Scalia
Anthony Kennedy · Clarence Thomas
Ruth Bader Ginsburg · Stephen Breyer
Samuel Alito · Sonia Sotomayor
Case opinions
MajorityRoberts, joined by Scalia, Kennedy, Thomas, Alito
DissentBreyer, joined by Stevens, Ginsburg, Sotomayor
Laws applied
U.S. const., art. II

Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010), was a 5–4 decision by the U.S. Supreme Court in which the Court ruled that laws enabling inferior officers of the United States to be insulated from the Presidential removal authority with two levels of "for cause" removal violated Article Two of the United States Constitution.[1]

Under the Sarbanes–Oxley Act, PCAOB officers could be removed only "for good cause shown" by officers of the Securities and Exchange Commission (SEC). Officers of the SEC could only be removed by the President for "inefficiency, neglect of duty, or malfeasance in office." Thus, although the President could remove high-ranking members of the SEC, he could not govern and execute power to the board, thus providing a "dual layer" of protection. The Court found this "dual layer" of protection "contrary to Article II's vesting of the executive power in the President."

Background[]

Facts[]

The Public Company Accounting Oversight Board was created as part of a series of accounting reforms in the Sarbanes–Oxley Act of 2002. It is composed of five members appointed to five-year staggered terms by the Securities and Exchange Commission.[2] Because the Board was created as a private nonprofit organization, "Board members and employees are not considered government 'officer[s] or employee[s]' for statutory purposes."[2] Every accounting firm that audits public companies under the securities laws must register with the Board, pay it an annual fee, and comply with its rules and oversight, among other things.[2]

In February 2006, the Free Enterprise Fund and Beckstead and Watts, LLP (a small Nevada-based accounting firm) filed a lawsuit in federal court challenging the constitutionality of the PCAOB under the Appointments Clause of the U.S. Constitution and the vesting clauses establishing the separation of powers. On August 22, 2008, the U.S. Court of Appeals for the District of Columbia Circuit upheld the PCAOB as constitutional.[3] Then-Judge Brett Kavanaugh dissented from that opinion.[4]

Decision[]

On June 28, 2010, in a five-justice majority opinion written by Chief Justice John G. Roberts, the Supreme Court found the appointment provisions of the Act to be constitutional, but struck down the for-cause removal provision. Roberts first cited the Decision of 1789 as demonstrating the First Congress overwhelmingly believed that "the executive power included a power to oversee executive officers through removal."[5] He then effectively revived Myers v. United States as precedent[6] by citing it as an reaffirmation of "the principle that Article II confers on the President 'the general administrative control of those executing the laws."[5]

Roberts distinguished the case at hand from Humphrey's Executor v. United States (1935) because Humphrey's dealt with principal officers.[7] He then distinguished the case from Morrison v. Olson (1988) because "Morrison did not . . . address the consequences of more than one level of good-cause tenure" which "makes a difference."[8] Because two levels of good-cause protection altered how the President could hold the Board accountable, the structure "was contrary to Article II's vesting of the executive power in the President."[9]

After finding the "for cause" provision to be unconstitutional, the Court held that the PCAOB board members were inferior officers because the SEC could remove them at will.[10] Further, it held that because "the Commission is a freestanding component of the Executive Branch, not subordinate to or contained within any other such component, it constitutes a 'Departmen[t]' for the purposes of the Appointments Clause", settling a question raised in .[11]

The Court did not accept petitioners' argument that the constitutional infirmity made all of the Board's prior activity unconstitutional; rather, it simply severed the for-cause removal clause from the rest of Sarbanes-Oxley, leaving the Board itself intact.[12]

See also[]

References[]

  1. ^ Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010).
  2. ^ a b c Free Enterprise Fund, 561 U.S. ____, at 3.
  3. ^ Hilzenrath, David (2008-12-23). "Sarbanes-Oxley Upheld By Court as Constitutional". The Washington Post. pp. D01. Retrieved 2008-08-24.
  4. ^ Free Enterprise Fund, 561 U.S. ____, at 7.
  5. ^ a b Free Enterprise Fund, 561 U.S. ____, at 11.
  6. ^ Mashaw, Seila (2020-08-27). "Of Angels, Pins, and For-Cause Removal: A Requiem for the Passive Virtues". The University of Chicago Law Review Online. Retrieved 2021-11-30.{{cite web}}: CS1 maint: url-status (link)
  7. ^ Free Enterprise Fund, 561 U.S. ____, at 13.
  8. ^ Free Enterprise Fund, 561 U.S. ____, at 14.
  9. ^ Free Enterprise Fund, 561 U.S. ____, at 15.
  10. ^ Free Enterprise Fund, 561 U.S. ____, at 29–30.
  11. ^ Free Enterprise Fund, 561 U.S. ____, at 30.
  12. ^ Russell, Kevin (June 28, 2010). "Provision of Sarbanes-Oxley unconstitutionally interferes with presidential authority". SCOTUSblog. Retrieved 2010-07-05.

External links[]

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